WHY NO LOAD-SHEDDING IS BAD NEWS
South Africa’s electricity usage, economic growth and government debt are all interlinked. Drastic changes are needed in order to brighten the country’s outlook, which currently looks bleak.
we have been without load-shedding for around 80 days now. This is the worst thing to happen in South Africa today. Why? Because it is an indication of the crisis the economy finds itself in. Between 2014 and 2015, SA’s peak demand for electricity has shrunk by between 1 500MW and 3 000MW. Peak demand today is around a level of 30 000MW. In 2014 peak demand was hitting levels of around 33 000MW. More concerning is when you look back a bit further, in 2011 peak demand was hitting levels of 36 000MW.
This is not a good story to tell. Looking at the National Treasury’s economic growth indicators, the figures bear out what the electricity data is revealing. In his Medium-Term Budget Policy Statement late last month, minister of finance Nhlanhla Nene revised the country’s 2015 economic growth forecast downwards to 1.5%. Projections for 2016 have also been revised downwards.
Bleak outlook on tax revenue
Nene was at pains to explain how government expenditure is under increasing pressure given the lack of growth in revenue.
In the speech, he said that SA’s gross tax income will fall by R7.6bn this year. And over the next three years? It’s projected to decrease by R35bn. So what happens when government’s income is not increasing but expenses are? It must find money somewhere so it ends up borrowing more – a lot more.
Again, the data is there. Since 2008, SA’s debtto-GDP ratio has increased from 27% to 47% in March this year. More concerning is the fact that government plans to add an additional R600bn of debt to the balance sheet over the next three years. R600bn. It’s worth repeating.
Some more data on state debt: in March of 2015, the country’s debt payments for the next three years were projected to be R420bn. That’s roughly R387m per day. Paying for debt – almost two Nkandlas per day.
Why am I hammering on economic growth? Because quite simply, without it, the country cannot deliver on its promises to lift people out of poverty and create jobs. We will also get more and more indebted. If government debt stays on the upward trajectory it is, then ratings agencies may start to relook the credit rating of the government.
Any downgrade would add a massive amount of additional pressure to the whole mix.
Will the NDP remain relevant?
The current economic growth also makes the National Development Plan (NDP) a lame duck that is meaningless. The contents of the NDP are meant to transform SA into a truly global powerhouse. The NDP is meant to eliminate income poverty by reducing the number of households in the country earning a monthly income of less than R419 per person (in 2009 prices) from 39% to 0%. The implementation of the NDP is also meant to reduce inequality and shrink the Gini coefficient from 0.69 to 0.6.
To achieve these two aims, the NDP identified some enabling milestones. These include increasing employment from 13m people in 2010 to 24m people in 2030.
This is real jobs, not ‘job opportunities’, by the way. The NDP also notes the need to produce sufficient energy to support industry at competitive prices, ensuring access to electricity for poor households, while reducing carbon emissions per unit of power by one third. That is quite a mouthful. For me the NDP stands and falls at one point, and I quote: “Transforming the economy and creating sustainable expansion for job creation means that the rate of economic growth needs to exceed 5% per year on average.” South Africa is currently growing at 1.5%.
We may as well throw the NDP out the window. Unless we believe the country will somehow grow at levels of 9% plus in years to come?
The only good thing about a slow economy is that it gives Eskom the space to do proper maintenance on its power stations. I sincerely hope and pray this is what’s happening. If not, we’re going to be in for a turbulent decade
Between 2014 and 2015, SA’s peak demand for electricity has shrunk by between 1 500MW and 3 000MW. Peak demand today is around a level of 30 000MW. In 2014 peak demand was hitting levels of around 33 000MW.
Eskom’s Grootvlei power station in Mpumalanga
Nhlanhla Nene Minister of finance